McCain Asks Pentagon IG to Investigate Air Force EELV Decision

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Amy Svitak

Sat, 2014-04-26 06:53

Air Force Plan to Limit Launch Competition Draws Lawmaker Scrutiny.

Arizona Republican Sen. John McCain has asked the Pentagon to investigate recent developments regarding the U.S. Air Force's Evolved Expendable Launch Vehicle (EELV) program, notably the service's stated intent to halve the number of national security launches open to competition, a move that stymies efforts by Hawthorne, Calif.-based Space Exploration Technologies (SpaceX) to unseat incumbent United Launch Alliance (ULA).

In an April 25 letter to Pentagon Inspector General Jon Rymer, McCain expresses concern that the Air Force is ignoring direction from the Office of the Secretary of Defense to aggressively introduce new entrants to EELV, a $70-billion program he says has incurred exponential cost growth in the absence of competition.

In response to the Air Force decision, SpaceX said yesterday it had filed a formal protest against the service in U.S. Federal Claims Court in an effort to open a multi-billion contract with ULA to rival rocket makers.

In a separate April 25 letter to Air Force Secretary Deborah Lee James, McCain requested additional information about her April 10 testimony on EELV before the Senate Armed Services Committee. In it, he expresses concern about “the apparently incomplete and incorrect nature of some of that testimony.”

April 25, 2014

The Honorable Jon T. Rymer

Inspector General

U.S. Department of Defense

4800 Mark Center Drive

Alexandria, VA 22350-1500

Dear Mr. Rymer:

I write to request that the Department of Defense Office of Inspector General (DOD-OIG) investigate recent developments regarding the Air Force’s Evolved Expendable Launch Vehicle (EELV) program. In 2012, the Air Force was directed by the Office of the Secretary of Defense to “aggressively” introduce competition into this program—a vital $70 billion national security space-launch program that, without competition, has been plagued by exponential cost growth and schedule delays. That directive reflected emerging consensus among all serious observers of the program, including the Government Accountability Office (GAO), that competition in EELV could help drive its costs down and, for the foreseeable future, keep them there. However, as described more fully below, recent developments, particularly the Air Force’s stated intent to cut in half launches originally designated for competition, indicate that the Air Force is moving in the opposite direction. Moreover, the demonstrably false explanations that the Air Force has offered to date in support of that proposal gives rise to a negative inference that the Air Force may indeed not be committed to competition in this program. Because the Air Force’s recent actions in this massive procurement program do not appear to conform to instructions from the Office of the Secretary of Defense or the Air Force’s own public commitment to competition, I ask that you independently review the Air Force’s compliance with the November 2012 Acquisition Decision Memorandum (ADM) directing the Air Force to “aggressively” pursue competition in the EELV program and all existing DOD policies and instructions relating to the use of competition for the procurement of products and services.

Background

The EELV program is the primary provider of launch vehicles for delivering U.S. military and intelligence satellites into orbit. In 1995, the Department of Defense (DOD) started the program with the goal of ensuring affordable access to space for government satellites. Initially, the EELV program procured launch vehicles from two competing providers, Boeing and Lockheed Martin. But in 2006, Boeing and Lockheed Martin merged their EELV capacities and formed a single provider known as the United Launch Alliance (ULA). Since then, the Air Force has procured EELV launches from ULA on a sole-source basis.

After 2006, program costs rose sharply. Between FY 2006 and FY 2014, the EELV program’s costs increased by 166 percent. In April 2012, the program incurred a “critical” Nunn-McCurdy breach because of how much its costs have grown.

After the 2012 Nunn-McCurdy breach, reintroducing competition into the EELV program’s procurement process came to be seen by many observers, including DOD leadership, as an appropriate solution to ballooning cost growth. In July 2012, the Government Accountability Office (GAO) issued a report titled “Evolved Expendable Launch Vehicle: DOD is Addressing Knowledge Gaps in its New Acquisition Strategy,” which indicated that the reintroduction of competition to the EELV program could reduce launch costs.

Concurring with GAO, on November 27, 2012, Under Secretary of Defense for Acquisition, Technology and Logistics (USD AT&L) Frank Kendall issued an acquisition decision memorandum (ADM) for the EELV program, which set out the acquisition strategy for the program. In that ADM, he directed the Air Force to “aggressively introduce a competitive procurement environment in the EELV program.” He authorized the Air Force to procure “up to” 36 rocket cores through sole-source procurement and “up to” 14 rocket cores through competition through FY 2017. This policy would allow new participants in the program, i.e., new entrants, to compete against ULA for EELV contracts after they successfully complete three test launches and submit corresponding launch data to DOD. Notably, on January 24, 2013, Under Secretary Kendall stated that “[t]he Department [of Defense] will allow new entrants to compete for launch contract awards as soon as the new entrant delivers the data from their final certification launch.”

After Under Secretary Kendall’s announcement, the Air Force proceeded with the sole-source piece of the acquisition strategy Kendall articulated. Specifically, in December 2013, the Air Force signed what it publicly described as a “requirements-like” contract with ULA for the procurement of 36 rocket cores. That contract guaranteed a delivery quantity of 36 cores and provided for termination liability of at least $370 million in the event that the contract was broken. The contract’s terms required that the Air Force purchase 36 rocket cores/launches and, if overall launch demand decreased, the difference would be satisfied by drawing from cores/launches originally designated for competition.

Meanwhile, new entrants had reportedly started meeting the benchmarks required to compete for EELV contracts. One new entrant in particular, SpaceX, performed its final qualifying launch on January 6, 2014 and finished submitting data from that launch to the Air Force two months later. SpaceX has claimed a per-launch cost of roughly $100 million for launching DOD payloads and roughly $60 million for commercial customers. Calculations based on budget allocations and launches per year suggest that ULA’s per-launch cost could be as high as $460 million.

In March 2014, in connection with the issuing of the President’s FY 2015 Budget Request, the Air Force announced that the number of EELV launches up for competition through FY 2017 would be reduced from 14 to 7. The Air Force has cited three primary justifications for its proposed reduction in competitive EELV launches in the FY 2015-2017 timeframe: (1) decreased demand for new satellites; (2) a payload weight-increase that moved the launch beyond new entrant capabilities; and (3) “to honor the long-term commitment buy that [the Air Force has] with ULA.”

On April 10, 2014, Secretary of the Air Force Deborah James testified before the Senate Armed Services Committee that the Air Force’s rationale for the 36 core block-buy was that those missions “tend[ed] to be for the heavier launches” and that no potential new entrant “has qualified [to launch heavier rockets] through the process yet.” Despite that assertion, the Air Force has not announced what missions would be flown on the 36 cores.

At the same hearing, Secretary James testified that some of the competitive launches were delayed “because the GPS satellites currently in orbit are lasting longer than anticipated. Therefore, we don’t need to launch the replacements as early as originally anticipated.” But, as early as 2010—three years before the December 2013 block-buy—an Air Force Fact Sheet stated that GPS satellites were designed to last “7.5 years, but many are lasting longer than 10 to 12 years.”Also, in October 2012, the Air Force stated that GPS 2F satellites “have 12-year design lives and will last longer than previous-generation spacecraft.” And, in July 2013, five months before the December 2013 contract with ULA was signed, the Air Force praised the discovery of a method for extending GPS satellite battery life, extending 60 percent of the constellation’s usable life by two years or more. The Air Force completed modifications applying this method to the GPS constellation in November 2013, one month before the ULA contract.

Investigative Issues

In light of the facts currently known, described above, I request that DOD-OIG examine four key issues, as well as any other related issues that you believe may warrant investigation:

1. The November 2012 ADM from USD-AT&L Kendall directed the Air Force to “aggressively introduce a competitive procurement environment” in the EELV program. But, the reduction—by half—in the number of competitive launches from fiscal year 2015 to fiscal year 2017 is obviously a move away from competition. How faithfully and satisfactorily is the Air Force implementing Under Secretary Kendall’s directive and all existing DOD policies and instructions relating to the use of competition for the procurement of products and services?

2. The Air Force has cited three reasons for pushing those seven launches out of competition and, in some cases, awarding them on a sole-source basis: (1) decreased demand for replacement GPS satellites; (2) weight-growth in one payload; and (3) “honor[ing] the long-term commitment buy that [the Air Force has] with ULA.” But, regarding the first and third reasons cited, by the time the Air Force agreed to the 36 rocket block-buy with the contractor in December 2013, the Air Force’s own documents indicate that it had been well aware of the decreased demand for GPS satellite replacements. If the Air Force knew about the likelihood of reduced launch demand, why did it structure its procurement so that the competitive portion of the program bore all the burden of potential launch reductions while the sole-source portion had a guaranteed number of launches? Why did the Air Force fail to take those considerations into account when it committed to 36 sole-source launches and outlined plans for 14 competitive launches?

3. Did Under Secretary Kendall approve of the Air Force’s use of a sole-source “requirements-like” contract with the incumbent that would, if necessary, put at risk competitive launches to satisfy the Air Force’s obligation to perform contractually as to the 36 sole-source launches? If so, why? And, how is the decision to use a “requirements-like” contract in that way consistent with the directive to “aggressively” pursue competition and all existing DOD policies and instructions relating to the use of competition for the procurement of products and services?

By some estimates, competition in EELV could save taxpayers up to $1 billion annually and help ensure that this program can be counted on for delivering needed military space capability at the most reasonable cost. With that in mind, the Air Force’s apparent deviation from the Office of the Secretary of Defense’s direction that competition in this program be “aggressively” pursued and from internal DOD policies and instructions on competition is profoundly troubling. Compounding my concerns are the specious justifications that the Air Force has cited to date for its proposal to cut competitive EELV launches in half.

For these reasons, I ask that you independently review recent developments in the EELV program to help ensure that the decisions that are being made in this $70 billion procurement program are in the best interests of the warfighter and taxpayer.

Sincerely,

John McCain

Ranking Member

Permanent Subcommittee on Investigations

April 25, 2014

The Honorable Deborah Lee James

Secretary of the Air Force

U.S. Department of the Air Force

1670 Air Force Pentagon

Washington, DC 20330-1670

Dear Secretary James:

I write to obtain additional information about your recent testimony regarding the Evolved Expendable Launch Vehicle (EELV) program before the Senate Armed Services Committee on April 10, 2014, and to convey my concern about the apparently incomplete and incorrect nature of some of that testimony.

As you know, the Air Force—consistent with positions taken by the Government Accountability Office (GAO) and just about every other serious observer of the EELV program—has repeatedly acknowledged (1) that the program must move away from sole-sourcing rocket launches to the incumbent contractor and bring full-and-open competition into the program and (2) that such a change in EELV’s contracting strategy could save billions of taxpayer dollars. For this reason, in November 2012, Under Secretary of Defense for Acquisition, Technology and Logistics Frank Kendall directed the Air Force to “aggressively introduce a competitive procurement environment in the EELV program . . . [to] obtain the positive effects of competition as quickly as possible”. In furtherance of that directive, Under Secretary Kendall instructed the Air Force to purchase up to 36 rocket cores from the incumbent on a sole-source basis and up to 14 cores through a competitive process, from FY 2015-2017.

While, in December 2013, the Air Force indeed entered into a block-buy contract for the purchase of 36 rocket cores on a sole-source basis with the incumbent, it is now proposing to cut that number in half the number of launches that were originally designated for competition.

At the April 10 hearing, several Members, including me, conveyed serious concerns about the Air Force’s proposal and its evidencing a lack of commitment to competition in this program. You attempted to explain the rationale for the proposal by noting that the 36-core block buy contract “tend[ed] to be for the heavier launches” and that “[no potential new entrant has] qualified [to launch heavier rockets] through the process yet.”

However, the reasons you cite for the block-buy contract and the lack of competition for those 36 launches appear to be specious for two reasons. First, to date, the Air Force has not announced missions to be flown on the 36 cores purchased in the block-buy. Therefore, the claim that the launches are “heavier” seems unfounded. Second, while no potential prospective bidder has been certified as a new entrant, at least one potential new entrant has qualified to bid for the balance of launches. According to Under Secretary Kendall, in a January 24, 2013, letter to GAO, “The Department [of Defense] will allow new entrants to compete for launch contract awards as soon as the new entrant delivers the data from their final certification launch [emphasis added].” While formal certification may require the Air Force’s full review of a new entrant’s data, its submitting data after its final qualifying launch is all that is needed to allow it to compete for launch contracts. So, your assertion that no new entrant is qualified to perform “heavier” launches is misleading and possibly false.

Given the importance of the EELV program to ensuring national security, the size of the program, and the need for competition to bring—and keep—EELV’s costs down, the necessity for a clear and accurate public record describing the Air Force’s current proposal on this program, and the rationale for that proposal, is as imperative as it is self-evident. With this in mind, I expect timely responses to my inquiries about that proposal, including your answers to the questions posed in the letter I sent to you on March 25, 2014, before the upcoming mark-up of the National Defense Authorization Act for Fiscal Year 2015. Further, I invite you to clarify your testimony from the April 10 hearing, particularly on the issue of whether the Air Force has actually assigned missions to the 36-core block-buy at this point.

Thank you for your attention to this important matter. If you have any questions or concerns, please have your staff contact Jack Thorlin, Counsel to the Minority, Permanent Subcommittee on Investigations, at (202) 224-XXXX.